Paying for the remiss?

The 27-country European Union (EU) is still divided over the idea of capping the gas price after weeks of talks. EU-27 failed, yet again, in their last meeting on Tuesday (October 26) to agree on this issue. Brussels has not yet made a formal proposal to make it happen. "The European Union could introduce a gas price cap this winter to limit excessive price spikes, but only if countries give Brussels a mandate to propose the measure", the bloc's energy chief said on Wednesday. EU energy commissioner Kadri Simson said it would still be possible to have that cap in time for winter. The commission has said the price limit would be designed to kick in as a "last resort measure" if prices spike. EU countries could provide that mandate at an emergency meeting of EU energy ministers on November 24, when they will decide whether to ask Brussels to propose the cap. But a consensus on the idea appeared elusive when energy ministers met on Tuesday, with countries still split, reports Reuters.

As per a report by Al Jazeera, at least 15 EU states want a cap on gas prices amid growing public anger over the cost of living in countries including France and Belgium. But Germany, the EU's biggest economy, has resisted the call, arguing a cap risked freezing Europe out of the gas market and reducing incentives for energy saving.

In 2021, over one-third (34 per cent) of Europe's energy, used for generating electricity, transportation and heating, came from burning gas. Nonetheless, dependence on gas varied. While countries like Belarus, Russia, Italy, the UK, and the Netherlands were highly dependent on gas, Iceland, Cyprus, Finland, Norway, and Estonia were less dependent. Germany, Greece, and Portugal were moderately dependent on gas as a primary energy source. According to Statistical Review of World Energy – BP (2022), in 2021, the overall energy mix of European countries as a whole was: Gas 34 per cent, oil 31 per cent, coal 11 per cent, nuclear 10 per cent, hydro 7 per cent, wind 4 per cent, solar 2 per cent and others 1 per cent. As mentioned in Al Jazeera, data reveal Europe's dependence on fossil fuels (gas, oil and coal) was as high as 76 per cent, compared to only 7 per cent on renewable energy sources.

Before Vladimir Putin's invasion of Ukraine, the EU got 40 per cent of its gas imports from Russia, but that has fallen to 7.5 per cent. Some central European member states still receive relatively large amounts of Russian gas, while others — Cyprus and Sweden — use no or very little gas at all in their energy mix. The standoff over the price cap is worsening relations between Berlin and Paris, reports The Guardian. But the leaders avoided an open rift between Germany and France, which would have exposed a divided bloc, as it confronted Russian President Vladimir Putin over the war in Ukraine. Meanwhile, Russia's president has said Europe was to blame for its energy crisis, with policies that starved the industry of investment, reports Reuters.

Europe's bleak winter

At the end of July, Russia reduced gas flows to Europe via the Nord Stream 1 pipeline to 20 per cent capacity. It has been reduced further. The weaponisation of gas deliveries has already resulted in energy shortages and high prices, and this will cause an economic downturn in Europe this winter. Analysts observe that Europe is in desperate straits this winter, and its hope for ending its energy crisis hinges on a weakened China. The slowdown of the Chinese economy, resulting in the fall in global energy demand, may help keep European homes warm this winter. However, the Economist Intelligence Unit (EIU), in their latest report, stated: "Europe's bleak midwinter, heading for an energy and growth crunch, predicts a miserable winter" for the continent. The key findings of the report include:

⁕ Russian gas flows to Europe via the Nord Stream 1 pipeline will fluctuate between zero and 20 per cent capacity in the coming months, resulting in a recession in Europe in the winter of 2022/23.

⁕ Hungary, the Czech Republic and Slovakia are likely to take the biggest economic hit. Not only will they experience gas shortages, but are also highly exposed to recession in Germany, given strong supply-chain links.

⁕ Germany, Austria and Italy will face gas shortages. EIU expects rationing in the German industrial sector to have region-wide spill over effects.

⁕ Elsewhere in the EU, the main impact will come through high energy prices, falling confidence, and weak external trade. The Baltic States and Bulgaria are particularly exposed. Problems in its nuclear sector make France's position more precarious than might have been expected.

⁕ Next year, Europe will struggle to restock its gas storage without flows from Russia. The winter of 2023/24 will therefore also be challenging. EIU expects high inflation and sluggish growth until at least 2024.

The EIU report also predicts "a recession in Europe this winter, with the brunt of the economic impact coming in the fourth quarter of 2022 and first quarter of 2023. An unsupportive global context—given US monetary tightening, China's growth slowdown, and growing investor nervousness—will exacerbate the downturn."

Energy security

The International Energy Agency has defined energy security as "reliable, affordable access to all fuels and energy sources". Energy security is vital to the EU's economy. However, lacking sufficient energy reserves of its own, the EU is critically dependent on imports. In 2020, these covered well over half (57 per cent) of the EU's energy needs – 97 per cent for oil and 84 per cent for natural gas.

Henry Kissinger once suggested, "control oil and you control nations; control food and you control people." Since the mid-1960s, with the initiation of the green revolution by the Rockefeller Foundation (financed by the largest oil conglomerate in the USA), Kissinger's strategy of controlling oil supplies, resulting in the control of food production and population, has successfully experimented in many developing countries, including India.

The US' agricultural science establishment, and chemical and agribusiness industries loved the discoverer of the high-yielding 'miracle seed' because he helped their industries grow massively around the world on the back of patented seeds and herbicides, and fossil fuel-based chemical fertilisers. The current energy emergency in the Western Europe and the impending food crisis is the latest fallout of Kissinger's strategy.

Since World War II, Europe has been facing the worst energy crisis over the last two years. It seems the EU has failed to address the question of energy security very seriously. It preferred to blame outside forces for the current mess. It may be mentioned that in 2020 and 2021 winters also, Europe experienced a significant increase in the price of electricity and natural gas due to a shortage of gas supply that led to increased use of coal and fuel oil. European policymakers either did not take notice or preferred not to change course.

According to the Economist, the suspected sabotage of gas pipelines in the Baltic Sea has shown how vulnerable Europe's energy supplies remain. All this spells trouble for the economy. On October 11, the IMF cut its growth forecast for 2023 for the euro area to 0.5 per cent, down from 2.5 per cent at the start of the year. It expects Britain's economy to grow by just 0.3 per cent. The OECD, a group of mostly rich countries, projected even worse figures last month. The direct impact of potential gas and power shortages could force energy-intensive industries, including chemical plants and heavy industries, to temporarily shut down. Countries with insufficient import capacities for liquefied natural gas, such as Germany, and landlocked countries that previously relied heavily on piped gas from Russia, such as the Czech Republic and Slovakia, will be the hardest hit. Countries that typically rely on imports to meet electricity demand could also be at risk if power shortages in Europe spread across the board. Europe is mishandling the energy crisis Russia has inflicted on it. Analysts fear Europe is still complacent about its energy crisis. More measures are needed to curtail demand and boost supply.

Action plan

After the Russian invasion of Ukraine and the disruption of the much-needed Russian gas supply to the EU, the EU policymakers might have recalled Kissinger's soft strategy of controlling an economy by controlling its energy supplies. The policymakers realised that the importance of a rapid clean energy transition has never been stronger and clearer. The EU imports 90 per cent of its gas consumption, with Russia providing more than 40 per cent of the same. Russia also accounts for 27 per cent of oil imports and 46 per cent of coal imports. On March 8, 2022, the European Commission released a communication titled 'REPowerEU: Joint European action for more affordable, secure and sustainable energy' on behalf of the Commission to the European Parliament, the European Council, the European Economic and Social Committee and the Committee of the Regions.

The European Commission in their communication highlighted that phasing out Europe's dependence on fossil fuels from Russia could be done well before 2030. To do so, the Commission proposed a REPowerEU plan that would increase the resilience of the EU-wide energy system based on two pillars:

⁕ Diversifying gas supplies via higher LNG imports and pipeline imports from non-Russian suppliers, and higher levels of biomethane and hydrogen.

⁕ Reducing faster dependence on fossil fuels at the level of homes, buildings and industry, and at the level of the power system by boosting energy efficiency gains, increasing the share of renewable energy and addressing infrastructure bottlenecks.

Subsequently, on May 14, 2022, the European Parliamentary Research Service came out with a report titled 'Future Shocks 2022: Strengthening our energy security'. This paper is one of the 11 policy responses set out in a new EPRS study (Think Tank, European Parliament) which looked first at various risks facing the European Union, in the changed context of a world coming out of the Coronavirus crisis, but one in which a war has been launched just outside the Union's borders. The study then looked in greater detail at the policy responses the EU could take to address the risks outlined and to strengthen the Union's resilience to them.

Drawing on the communication of March 2022, the European Commission published, on May 18, 2022, the REPowerEU plan, presenting a series of measures to: phase out the EU's dependence on Russian energy well before 2030, fast-forward the green transition and increase the resilience of the EU's energy system. Besides contributing to the EU's climate objectives, these three dimensions will help lower energy prices over time and reduce import dependency. The report flagged the following action plans:

⁕ The Commission has adopted six sanction packages of restrictive measures against Russia since the aggressions in Ukraine started, and the last one included a complete import ban on all Russian seaborne crude oil and petroleum products.

⁕ Ending the EU's reliance on Russian fossil fuels will require a massive scale-up of renewables, faster electrification, and replacement of fossil-based heat and fuel in industry, buildings, and transport.

⁕ With a new, dedicated EU solar strategy – which was launched with the REPowerEU package – the Commission proposes an increased target of over 320 GW of solar photovoltaic newly installed by 2025 (over twice today's level) and almost 600 GW by 2030.

⁕ Beyond investing in and speeding up renewables, it is equally important to diversify the EU's energy supply. To compensate for the fossil fuels no longer bought from Russia, the EU is turning to other international and reliable partners, looking to increase the import of liquefied natural gas (LNG) from the US, Australia, and Japan, among others. The EU also aims to conclude trilateral agreements with Egypt and Israel before summer.

⁕ The EU external engagement energy strategy has been launched alongside the REPowerEU package. It aims to strengthen the EU's energy security, resilience, and autonomy while promoting broader energy partnerships with global partners.

⁕ The EU will aim to ensure that additional gas supplies from existing and new gas suppliers are coupled with targeted actions to tackle methane leaks and to address venting and flaring, creating additional liquidity on global markets while ensuring significant climate benefits.

⁕ The external energy policy also foresees the creation of hydrogen partnerships with EU neighbours and other partner countries to facilitate the import of 10 million tonnes of renewable hydrogen by 2030, compensating for the gas no longer imported from Russia

⁕ Moving away from the Russian energy supply, the EU will also prioritise energy savings and efficiency, aiming to achieve a 5 per cent reduction in oil and gas demand in the short term

UK's energy security

In April 2022, the UK government released a policy paper titled 'British energy security strategy', which applies to England, Scotland, and Wales. The policy paper highlighted an important issue. Though the UK is no more a member of the EU, the security of the EU gas supply matters to the UK because:

⁕ it affects the prices of UK's gas and electricity;

⁕ it could affect the UK's own security of supply if gas imports into the UK were redirected to the EU;

⁕ energy exports are economically important to Russia and changes may therefore affect geopolitically.

Russia's invasion of Ukraine has stimulated UK-EU cooperation on the security of the energy supply. At the 30 March 2022 meeting of the UK-EU Specialised Committee on Energy, the UK and the EU agreed to facilitate regular exchanges on the security of supply. They specifically discussed establishing a Working Group on the Security of Supply as a matter of priority. Subsequently, the UK Government confirmed in its Energy Security Strategy that Liquefied Natural Gas (LNG) destined for mainland Europe could be channelled through the UK. This is because there is insufficient LNG import capacity within the EU, but spare capacity in the UK as well as in the pipelines from the UK to mainland Europe.

Conclusion

Since the early 1990s, the EU has been trying to shift away from fossil fuels to renewable energy. Countries like Germany, the Netherlands, and Denmark have led the campaign for carbon-neutral clean energy. But data reveals the EU is still heavily dependent on imported fossil fuel – making it extremely vulnerable to external disruptions. It is apparent that the energy security issue, in a unipolar world, did not receive due importance from the EU leadership. But the contemporary geopolitical realities have compelled EU and UK policymakers to accord due importance to the energy security issue it deserves.

India is also very much dependent on energy imports and its dependence is growing. Indigenous crude production has remained stagnant during the last two decades. India's oil and oil equivalent gas import dependence in 2014-15 and 2015-16 was 68.9 per cent and 72.2 per cent, respectively. From April-January in 2020-21, it was 77.1 per cent. Currently, it is over 80 per cent. Moreover, the entire solar energy programme in India is fully dependent on imported PV cells. Regrettably, strategic intent to address such an important security issue is missing. The Government of India is yet to come out with a comprehensive energy policy, placing the energy security issue at the core.

Perhaps, till now, the Indian policymakers have failed to comprehend that in the post-green revolution era, food production is very much dependent on fossil fuel-based fertiliser, and energy security is an important strategic issue for the survival of the millions of hungry citizens of the country.

Views expressed are personal